Britain’s trade relationship with Europe in a post-Brexit world may not be top of mind as voters weigh the June referendum, but it may be critical for their country’s future prosperity.

If British voters decide to leave the EU, the U.K. will have to strike a new trade arrangement with the remaining 27 EU member countries.

There’s a lot on the line: U.K. trade with the EU accounted for 45 percent of exports and 53 percent of imports of goods and services in 2014, according to a House of Commons report. More than three million jobs are linked to exports to the EU, the report stated.

What would post-Brexit trade landscape look like?

Most Brexit backers suggest a free trade agreement based on the Swiss or Norwegian models. Nigel Farage of the U.K. Independence Party believes Britain can do better. He told the BBC in November: “We are a country of 65 million people. If Norway, Iceland and Switzerland can get deals that suit them, we can do something far, far better than that.”

UKIP leader Nigel Farage. photo by Matt Cardy/Getty

The Euroskeptic Conservative MEP David Campbell Bannerman wrote in The Telegraph last month that Britain should aim for “WTO Plus,” describing it as “a guaranteed basic trade deal based on current World Trade Organization arrangements with a better free trade deal on top.”

On March 2, the government submitted to Parliament a paper outlining three “alternatives to membership,” concluding: “The U.K. government believes that no existing model outside the EU comes close to providing the same balance of advantages and influence that we get from the U.K.’s current status inside the EU.”

POLITICO looked at existing EU settlements with countries outside the bloc and narrowed down on five options for the U.K.:

1. Join the minnows

The first option available would be for the U.K. to sign up for the European Free Trade Association (EFTA) and then enter the European Economic Area (EEA), like Norway, Iceland and Lichtenstein.

While the EFTA is a loose intergovernmental organization aimed at promoting free trade and economic integration, countries in the EEA are part of the EU Single Market with free movements of people, goods, services and capital in all member countries.

This would allow the U.K. to maintain access to the Single Market and continue trading with EU member countries with very few export-import restrictions. But there’s a major caveat: it would also require the U.K. to accept a high proportion of EU laws without any way of representing its interests in the EU institutions that make them.

Not everyone in Norway, Iceland or Lichtenstein is happy with this arrangement.

Paal Frisvold, Norwegian managing director at Geelmuyden Kiese Brussels, a consulting and lobbying firm for Scandinavian companies, said that even though British Euroskeptics use the term “colonization” to describe the U.K.’s current relations with the EU, the term is more apt for Norway, which makes a full financial contribution to the EU budget but has no voice in the EU.

People in Norway ask: ‘How are we seen in Brussels?’ But the problem is, we are not seen — Paal Frisvold

“It’s a very humiliating situation for Norway,” Paal Frisvold said. “People in Norway ask: ‘How are we seen in Brussels?’ But the problem is, we are not seen.”

Jonathan Hill, the EU commissioner for financial services, told the U.K. Treasury Committee that Norway was “in the position of a supplicant” when dealing with EU authorities, adding: “For us to be in that position would be, to put it mildly, a trifle odd.”

The Euroskeptics’ argument that the U.K. would get a better deal because of its size is only a guess. It may also be difficult to convince voters who decide against EU membership on more emotive issues, such as migration, to accept an arrangement that would essentially keep them in the Single Market. Besides having to contribute to the EU budget, “the U.K. would need to accept the free movement of persons,” said Alberto Alemanno, a professor for EU law and risk regulation at HEC Paris.

2. Be more like the Swiss

If the U.K. decides to copy the Swiss, signing the EFTA will not be enough; the U.K. will also need to sign a bilateral trade agreement with the EU that is tailor-made for British needs.

However, “striking an agreement like the one Switzerland has with the EU would take years to negotiate,” Alemanno said.

Moreover, if it wanted to follow the Swiss model, the U.K. would also be likely to have to contribute to the EU budget, abide by some internal market laws — and accept the free movement of people.

While the Swiss voted for limits on immigration by EU citizens in a referendum in 2014, it is still highly uncertain whether the EU will accept the result.

“The more access you want [to the Single Market], the more you need to adjust your regulatory set-up,” said Alexis Lautenberg, chairman of the Swiss Finance Council, which represents the interests of Swiss financial institutions.

And again, even though he was “very happy” with the way Swiss organizations can work with EU institutions, Lautenberg observed that Switzerland has no impact on the decision-making process in Brussels.

3. Do like the Turks

If the U.K. wanted to move in the direction of even less integration, it could imitate Turkey and enter into a customs union with the EU.

A customs union is a kind of free trade area with a common external tariff. But this would only secure limited access to the Single Market: In Turkey’s case, the arrangements cover industrial and processed agricultural goods, but not raw agricultural products or services. And the U.K. would still need to apply EU laws to areas covered by its own customs union, again without having a say on those rules.

One of the Euroskeptics’ main arguments in favor of a customs union is that the U.K. would be able to strike its own trade agreements with third countries.

Not so.

“The U.K. would be obliged to have common external tariffs and common trade arrangements with third countries,” said Roderick Abbott, a senior trade adviser at Kreab and former deputy director-general at the WTO and the European Commission. “For instance, when the EU did a free trade agreement with Korea, Turkey, because it is in a customs union with the EU, had to give a similar arrangement to Korea” — even though it was not involved in the negotiations.

But CETA has not been signed yet due to disagreements over the so-called investor-state dispute settlement mechanism — although major progress on this front has been made in recent days.

“CETA has without question been a long process,” said Canada’s ambassador to the EU, Daniel J. Costello. He said official negotiations were preceded by several years of preparatory work, while months of toil still lie ahead to complete translations and obtain formal approval on each side before the agreement can be signed, ratified, and enter into force.

The U.K. Euroskeptics are looking at it with rose-colored glasses — Jason Langrish

“The U.K. Euroskeptics are looking at it with rose-colored glasses,” said Jason Langrish, president of the Canada Europe Roundtable for Business, referring to the prospects of the British negotiating a similar agreement with the EU. “There are a lot of areas where member states need to agree. It is very complex and very complicated.”

Worst of all, “everyone will know that [the U.K.] needs a deal,” he said. “Who’s going to have the upper hand?”

5. Live and let live

An option that no one seems to consider seriously, not even the Euroskeptics, is simply to trade with the EU within the framework of the WTO.

However, if the U.K. decided to do so, it would need to strike its own trade agreements with third countries. Currently, the EU ambassador to the WTO speaks on behalf of all 28 member countries and, by being part of a greater bloc, the EU member countries have more leverage over other WTO members.

“The EU has such a broad geographical agenda of free trade agreements because countries are queuing up to negotiate with us,” said EU Commissioner for Trade Cecilia Malmström in a speech in London on February 25. “And that’s because the EU, with our 500 million consumers, is the world’s largest vital market.”

Abbott, the trade adviser, agrees: “In the U.K., people are saying, ‘we can trade with everyone, we can make our own agreements with the rest of the world.’ But it is not an advantage. [The U.K.] will have less bargaining power.”

This article was updated to correct the party affiliation of MEP David Campbell Bannerman.

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HP

There is one additional point: if the UK decided to leave, the EU would have to drive a very hard bargain, possibly even one that is suboptimal for the EU itself, to demotivate others from going the same route.

Posted on 3/8/16 | 9:22 AM CET

Roy Jacobs

How did we ever get by without having a psychiatric nurse arranging trade on our behalf.
Its a mystery.

Posted on 3/8/16 | 12:18 PM CET

S. Weiser

I’m convinced, that other countries will first take a look at Britain in one, two or five years before deciding to go the same way. The wiser knows, that everyone has the right to leave the bloc, but doing so will implicate advantages or disadvantages, that you will see later. I’m also convinced, that Britain will do worse outside the bloc. The article describes their options quiet well.

Posted on 3/8/16 | 2:28 PM CET

Marcel

My country Netherlands would also be better off out of the Eurosoviet Union.

Trade does not require the undemocratic EU.

The EU will start off with a 8 billion hole in their budget. They definately have the worst position in this.

Posted on 3/8/16 | 2:34 PM CET

Iwantout

Masses of ground covered in this item, but there are some points which should be made in response.

Join the minnows – EFTA countries accept only around 9% of EU legislation, essentially only trade law, no social legislation etc. They take full part in the comitology process to frame that legislation but do not have a final vote, given UK marginalisation under QMV a vote is largely irrelevant. Additionally much EU trade legislation emanates from Global bodies on which Norway (unlike the UK) is present. A final point, the Norwegian Treaty with the EU allows for a “right of reservation”. Currently there are 400 EU laws that Norway has declined to impose.

More like the Swiss – UK pays 229 euro per capita to EU, Switzerland pays 68 including a Schengen payment which would not apply to UK. Switzerland currently looking at free movement. UK starts fully compliant with all EU legislation difficult to see why new treaty would require years to negotiate.

Do like the Turks – The EU (including the UK) is a customs union. Euroskeptics call for a free trade deal not a customs union, giving the UK the ability to negotiate own trade deals, much as Switzerland and members of NAFTA, Mercosur and ASEAN (the other larger global trading blocs) do. .

Common Cause with Canada – EU has been negotiating CETA for 8 yrs, Mercosur deal started 1998 not signed, India 2007 suspended etc. Not even started talking to China yet while Switzerland has already has a deal. No evidence that EU trade deals are better than those negotiated by individual countries (Civitas May 2014 http://www.civitas.org.uk/archive/pdf/insideradvantage.pdf ) EU represents 28 countries, the UK would be representing 1. Immeasurably less complex. UK wants a deal, but we are the ones who have the £61.6bn deficit so the EU wants to trade as well.

Live & let live – No evidence EU has more leverage from the trade deals struck (see above). EU is a market in long term decline and the EZ has had a growth rate lower than Japan over last 10 years (0.8% v 0.9% Goldman Sachs). We are bigger economy than Brazil, India, Russia, etc,and fifth biggest in World according to IMF, World Bank & UN. We could negotiate for ourselves readily enough.

It really is a great deal more nuanced than this article suggests. Of course the EU could decide to ‘punish’ the UK, although a great many EU manufacturers and those rendered unemployed might have a view on this.

Posted on 3/8/16 | 2:54 PM CET

Tim Bond

Maybe join EFTA…or maybe follow Norway? Britain is hopping away from the security of the EU free trade zone without any proper plans to establish new legal structures with experienced negotiators.

We rely on the EU for setting European standards that it will be impossible to employ a new army of civil servants familiar with rules and regulations to protect the consumer. To negotiate with over 100 countries on new trade tariffs will test any British government who cant even run the NHS.

So all imports from Europe will be surcharged with immediate EU tariffs to be agreed by 2018. PM Cameron seems unaware of the implications; only driven by his friends in the City of London who yearn to trade at will like shorting the next banking crash as an act of mercilessness. No mercy for the sleeping masses who just wanted a change of scenery; but not really a new PM as if that would help?

Posted on 3/8/16 | 3:09 PM CET

Alan

Of course post-Brexit the UK would wish to negotiate the best possible trade agreement with the remainder of the EU. Just as I suspect the remainder of the EU would wish to negotiate the best possible trade agreement with the UK.
Brexit would be a rejection of the uncontrolled free movement of labour as at present.
Brexit would be a rejection of the continuing flow of rules/regulations/centralisation etc emanating from the EU.
Any post Brexit agreement which did not respect these rejections would gain political acceptability.

I accept that some of the more rabid Europhiles in the remaining EU may wish to try to bring a ‘punitive’ edge to any settlement. I can only observe that it would take time to agree a settlement – min 2 yrs under Article 50- during which time my understanding is that existing arrangements would remain in place until a new settlement is reached.
What would not remain in place however would be present governments (Ireland, Spain & Slovakia not currently having governments) Post a pro- Brexit vote I suspect that the broader Eurosceptic movement would receive a massive boost. The political complexion of the constellation of Govts involved in final negotiations may be considerably different from that of those in place at end June. Any politician looking over their shoulder at their own electorate would probably have to consider whether or not taking the ‘punitive’ line would in fact have domestic political support.

Posted on 3/8/16 | 5:33 PM CET

Alan

Amendment :

Any post Brexit agreement which did not respect these rejections would NOT gain political acceptability.

Giuseppe Marrosu

@ Alan
Re: change of governments post-Brexit:
who knows if the UK’s gov’t changes too…
If Brexit passes, which I doubt, then the anti-EU side would gain support in the remaining Union, but so would the anti-UK side. Negotiatiators from the EU will not ignore that feeling. Something for the “leave” supporters to think about.
On the other hand if Brexit is rejected, those new european govts could reject the Cameron-Tusk agreement, which was agreed on when they were not in charge. And that’s something for the remainers to think about.

Posted on 3/9/16 | 8:45 PM CET

Malcolm Stevas

Curious that nowhere in this otherwise useful summary (unless I missed it) is there mention of the UK’s substantial trade imbalance with the rest of the EU. Germany especially sells us a huge amount: the UK is BMW’s fourth largest world market, and other huge corporations including Mercedes and BSH (Bosch, Siemens etc) depend on UK sales to a significant degree. It seems to me unlikely that such exporters would happily risk UK import tarriffs imposed in the case of aggressive EU obstructiveness post-Brexit. Further, that figure of 45% of our exports going to the EU is surely just a reiteration of an ongoing error caused by (deliberate?) failure to allow for the entrepot factor whereby exports travel initially through such ports as Rotterdam before shipment elsewhere.

Posted on 3/13/16 | 1:30 PM CET

Sceptical about skeptic

Is it only me, or does the spelling “skeptic” on a supposedly European edition of Politico enrage anyone else?

A proper article would consider (a) the retention of free trade, passporting etc within the EEA, which also allows excessive immigration to be curbed. (b) the fact that the EU and all its members are WTO members. The WTO is about commitment to trade stability and progressive liberalisation of trade, and it insists regional trade agreements are about boosting trade and not making life difficult for other countries. The WTO (Marrakech) agreement is legally binding.

So, HP, if the EU wants to make life difficult for the UK, it will have to find some other way of doing it.

Read ‘Flexcit – the Market Solution’ for a reasoned Brexit plan.
The Treasury hasn’t even been able to come up with a contingency plan.

Posted on 5/23/16 | 7:57 PM CET

Jodocus

Mr. Farage is overlooking one crucial point: the very fact of Britain’s size will make it imperative to level out any competitive advantage firms in the UK may have over their EU competitors as a result of not having to comply with a raft of EU regulations by tariffs.

With countries like Switzerland and Norway their economic impact on the EU is relatively small, and in the case of Norway its huge oil reserves make it advantageous to offer it good terms, and as regards Switzerland: its economy is likewise small and we need its cooperation because its sitting on one of our vital internal trade routes.

Besides which, both Norway and Switzerland implement all applicable EU regulations as a matter of course. But that (as I understand) is one of the main reasons the UK wants to leave.

In the case of the UK however, its economic strength is such that any difference in competitiveness due to not conforming to EU regulations will quickly translate into major economic consequences. We simple cannot afford that.

Hence there can be no question of offering the UK “soft” terms, and there will have to be tariffs on a sector-by-sector basis. It cannot be otherwise.

Posted on 6/9/16 | 11:15 AM CET

Jim

In the last 24 hours, the most common question asked of Google in the UK has been “What is the EU?” It’s incredibly dangerous to allow decisions of such enormous global importance to be made by people that don’t understand the most fundamental aspects of the matter they’re deciding.

Like in America, conservative politicians whose power depends on placating the far-right (and implacatable) fringe have created another unnecessary, self-inflicted trauma instead of doing the sensible thing.

The UK needs the same relationship with the EU as currently enjoyed by Jersey and Guernsey They are treated as part of the EU for the purposes of free trade in goods, but are not otherwise part of it. EU Nationals are free to come to live and work there, but only subject to the local housing requirements. In other words, they can simply decline to admit EU immigrants if there is not the housing available.